As the hype around blockchain continues and it looks increasingly like the technology is here to stay, insurers are taking a closer look and seeking to create coverages to respond to this evolving market.
Blockchain currently has a variety of applications for existing operations, such as shipping, pharmaceutical and cryptocurrencies, but could also come into play for new operations (such as software development, content management and logistics).
Broking and underwriting related to blockchain is a complicated process, but insurance coverage can be placed for clients operating in the blockchain or digital asset world, said Sarah Downey, senior vice president with Marsh’s FINPRO (financial and professional liability) practice. She discussed some of the new exposures and insurance needs for blockchain in a webinar Tuesday:
- Directors and officers (D&O) liability insurance – This typically covers claims by investors, shareholders, limited partners, some types of actions or investigations by regulators brought against directors and officers. They are associated with some kind of security violation or breach of duty, or some type of regulatory investigation or proceeding. Generally speaking, D&O coverage can cover just the individual directors or officers and sometimes employees for non-indemnifiable loss. Sometimes it can also cover the company itself for the company’s alleged acts, or cover the company’s indemnification of its directors and officers.
- Fidelity or financial crime – Provides coverage for theft of a currency by an employee. “In this space, it is often interrelated with cyber insurance,” Downey said, using the example of a breach of network security.
- Cyber insurance – Provides coverage for first-party loss like business interruption and notification costs in the event of an incident, as well as coverage for third-party liability and regulatory defence associated with network/data security and privacy failures.
- Errors and omissions or professional liability – Covers claims by clients arising out of the failure to provide some type of professional service, or failure to meet a professional obligation to a client.
- Kidnap & ransom insurance – “This might surprise some of you,” said Downey during the webinar, Cryptocurrency & Blockchain Insurance: New Exposures and New Insurance Needs. This coverage provides first-party coverage and access to threat response and corporate/personal security experts in the event of a ransom, kidnap or some other triggering event. “Given that, for some companies in this space, a select group of individuals either hold the private keys or information that controls access to the digital assets being held, and given the amount of wealth being generated in this space, K&R coverage comes up often in discussions with clients.”
- Employment practices liability – Covers claims alleging wrongful employment conduct, such as discrimination, sexual harassment or wrongful termination. “While there isn’t anything specific to EPL insurance in this space, for some of the newer digital asset blockchain companies, they might just be starting to put in place their HR and other employment-related processes and protections, so that’s something to be aware of.”
- Employed lawyers coverage – A “much less often discussed coverage,” employed lawyers insurance covers liability arising out of the professional services provided by an in-house lawyer. “Given that there are many start-ups in the digital asset space and many of them are bringing in various experienced outside counsel, employed lawyers’ coverage is something that definitely might come up in discussions with clients,” Downey said.
Blockchain is essentially a record of digital events that is “distributed” or shared between many different parties. It can only be updated by consensus of a majority of the participants in the system. “Once entered, information can never be erased,” Deloitte said. “The blockchain contains a certain and verifiable record of every single transaction every made.”